Oil Prices vs. Year-end Window Dressing: Who will win?

Two prize fighters jumped into the ring recently on Wall Street...

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Wednesday, December 17, 2014

...This isn’t Bull versus Bear, this is market order selling of desperate investors to escape from oil stocks at any price versus the window dressing buying necessary by institutional cash sitting on the books needing to be invested before January 1, 2015.

Oil stocks, tied to the commodity price, cannot support the selling pressure as buyers are stepping out of the way to avoid getting crushed. Fund managers, money managers, mutual funds and managed money sitting long cash must put the cash to work before year-end or risk redemptions by investors. There’s no way this cash is buying oil stocks, yet they would side step the fall, rather than trying to catch the knife, but if oil stocks get low enough the temptation and potential dead cat bounce before year-end could be irresistible.

I think the US equities markets are still the place to be as compared to other markets and other instruments. Smart money owns big oil positions as oil prices are free falling as many try to unwind and go to cash. I imagine there are boat loads of cash just waiting for a momentum play and I wouldn’t be surprised if this market breaks its record high before the New Year’s party hors d'oeuvres. For me the volatility is amazing, 300 point swings for traders is an early Christmas every day.

First it was resource stocks that got crushed now oil stocks - what’s left to crush? Technology, Retail, Financials, Real Estate, I don’t think so…

Recently an experienced oil man gave me his opinion which made so much sense. He bets the ultimate end game is lower oil prices to cut into OPEC and Russia and small oil rich exporters, and furthermore, the US will shortly become an exporter of oil to compete on a global basis.

Why not? Between new technologies, new exploration, reduced vehicle requirements and usage reductions from alternative eco-friendly materials it looks to me like he could definitely be correct. No one is complaining about lower prices at the gas pump especially the retail sector!

Consumers cannot wait to fill up their cars. I mean gas is half the price it was while OPEC and Russia were filling their vaults with our cash. After buying holiday presents and watching all the extra money from gas savings end up buying stocks on Wall Street, it’s a perfect scenario. Sure the market has the potential to go lower but this could be very temporary because once oil stocks go lower and stabilize as every bullish pundit says it will, buckle your seat belts because the rocket ship of buying could be like nothing we have seen yet!

So in summary I remember the realization as I pumped $4.50 per gallon gasoline into my automobile, the oil companies are reporting record profits earnings, on billions of revenue, thanks to me and the rest of us non-Tesla drives. From that stand point it’s about time gas prices are affordable. I now look forward to driving into a gas station and now I might have some extra cash to jump on the yearend band wagon.